Spain Guide



Spanish Property Sales

Under declaring the true market value in Spanish property sales is a somewhat dodgy but very common practice. It's a very bizarre sight to sit in the notary's office watching people take out huge wads of money from their briefcases and count it out laboriously in front of each other before signing the sale documents.

This is the "black money" which has not been included in the official sale price because the seller is trying to reduce his capital gains tax and the buyer is trying to reduce his transfer tax.

It's a strange system and in a country which has one of the most thriving black economies in Europe it often works to the mutual benefit of both parties.

Take an example of a villa costing £180,000 ($276,000). The 6% transfer tax, normally paid by the buyer, is £10,800 ($16,575) and the seller has to pay tax both the plus valia * and capital gains tax on his profits from the sale.

The buyer and seller agree to declare a sale price of £150,000 ($230,000) thereby reducing the buyer's transfer tax burden by £1,800 ($2,762) to £9,000 ($13,810).

The declared value is lower so the seller's capital gains tax is also reduced accordingly.

The buyer gives the seller £30,000 ($46,036) in cash or a bank guaranteed cheque when both sides go to the notary. The notary pretends he hasn't noticed what's going on and rubber stamps the sale transaction at the reduced price and everyone goes away happy.

It's important to bear one or two points in mind before you go down what seems to most foreigners to be a rather shady but quite attractive! avenue.

Firstly, the Spanish tax authorities are starting to clamp down on this practice and a completely unrealistic declared value will often no longer be accepted and can incur heavy financial penalties.

Secondly, if the sellers are not liable to capital gains tax because, for example, they're pensioners or the property is owned by a company, they probably won't be interested in doing a deal on the declared value.

Finally, and most importantly, if your declared value is substantially less than the actual value you could be hit with a painful plus valia and capital gains bill yourself when you come to sell the property. By then this practice may have disappeared completely or you may not be able to find a buyer who agrees to it.

* Plus Valia : this is a bit like a capital gains tax. It's levied by the local town hall which calculates the increase in the value of the land since its last sale (you or your lawyer should be able to get this information from the town hall in advance of the purchase). In Spain, the law doesn't specify who's responsible for paying which taxes when it comes to a property sale so it's important for you and the seller to decide in advance who's footing the bill for the plus valia which can be anything from 10% to 40% of the increased value of the land depending on the type of property and the length of time since the last sale.